How to Save for Retirement
Retirement might feel like lightyears from now, but the longer you are from retirement, the greater the advantage you have to start saving for retirement now because of *compound interest*. Every year that you're saving for retirement, the capital gains/interest you gain is working to build your investment even more. Nothing beats the power of *time*.
Now that you're convinced to start saving for retirement, the question then becomes how???
Some Retirement Options (in my preferred order)
- state's pension system (pre-tax)
- Roth IRA (post-tax) / Traditional IRA (pre-tax)
- 457 tax-deferred plan (pre-tax)
- 403(b) (pre-tax)
- individual brokerage investment accounts (money you put in is taxed, capital gains accured are taxed upon removal)
How to Pick retirement options
Some things you'll want to consider when figuring out which retirement option(s) to pursue:
- does your district/school offer any matching contributions? If so, definitely maximize your contribution to take advantage of matching. Your school contributes to your pension, so you should be contributing to it as well automatically.
- are you looking to defer taxes? If so, you'll want to pick a pre-tax option above so that the funds are taken from your paycheck prior to being taxed. Your funds will grow pre-tax and then will be taxed upon withdrawl.
- how much are you looking to contribute? Many of the options above have yearly maximum contribution limits. For example, the Roth IRA/traditional IRA has a $6000 maximum contribution, while the 403(b) is $20,500 and the 457 is $20,500. These maximum contributions are all independent of one another, meaning you can max out all three accounts if you want to.
- what companies and fund options are available? Many district-offered 403(b) and 457 programs have set companies and funds for you to choose from. You want to make sure you're looking for the *lowest fees*. These will typically be index funds through large brokerages like Fidelity, Vanguard, etc. The fund I chose through Fidelity has an expense ratio (fee rate) of 0.015% for reference. ***DO NOT USE AXA/EQUITABLE***